LONDON (Reuters) - Ukraine’s debt burden cannot be restructured by just extending the maturity of its bonds, and creditors are unlikely to benefit if they “hold out” to maximise payments, Finance Minister Natalia Yaresko said on Tuesday.
After a year of war and political upheaval that has seen its currency plummet and sent its economy into a tailspin, Ukraine agreed a $17.5 billion (12 billion pounds), four-year bailout facility with the International Monetary Fund this month. The deal obliges Kiev to restructure at least $15.3 billion of outstanding debt.
Creditors have been told the restructuring will involve a reduction in coupon and face value, as well as maturity extensions, though many have suggested Kiev could just extend maturities for now while it re-assesses its finances and decide later what kind of writedowns it must inflict, if any.
Yaresko said that would not make sense.
“Just maturity extension does not get us within the three goals that we agreed to with the IMF, it doesn’t get us to the level of debt sustainability that I think we need,” the finance minister told Reuters in an interview in London.
“We are trying to do this once and to do this in a way that gives us the breathing space, the cushion that we need going forward,” she said, adding this was the lesson learned from previous restructurings, including Greece.
A source familiar with Ukraine’s thinking and close to the talks had said earlier there would be no “extend and pretend”, referring to the option of just prolonging repayment times. This option would simply bring Ukraine back to the creditors’ table at a later stage, the source said.
Yaresko has been on a whirlwind trip to meet 15 of the top holders of Ukraine’s bonds. They include American investment firm Franklin Templeton, which holds some $6.5 billion worth of bonds, or over a third of all outstanding sovereign issues.
She earlier told investors she expected to start talks with an ad hoc creditor committee by Monday or Tuesday next week
Yaresko also said there would be no benefit to any creditors to “hold out” - refuse to participate in the restructuring with a view to extracting more money.
Greece’s debt restructuring most recently, saw some funds holding out and ultimately going on to recover far more of their investment than those agreeing for a settlement. That raised the spectre that this would be repeated in future debt workouts.
“I don’t see that as a real option here - our goal is to bring as many people in as possible, and I don’t think being a hold out is necessarily a better option in our case,” she said.
“We don’t have the type of bailout package that Greece has, we don’t have the type of cushion that Greece has.”
Yaresko quashed speculation of a Brady-style restructuring that would see creditors take a writedown, but in return get a bond that would effectively be guaranteed by the United States.
“It does not seem to be possible at this time,” she said.
Asked if she meant Ukraine had not raised this option or whether Washington did not offer it, she said:
“The U.S. is not offering it.”
Another big bondholder is Russia, which holds $3 billion due in December this year. Moscow has repeatedly said it is not ready to restructure Ukraine’s debt and expects Kiev to repay what it owes.
“We contacted (Russia) through the custodial system. We sent instructions on how to get in touch with us,” Yaresko said at a conference at Chatham House, also on Tuesday. “We have no intention to discriminate on the basis of nationality or location or anything else.”
But the bonds’ status could prove a stumbling block.
Russia has suggested that its bonds should be classed as sovereign or official sector debt and not subject to restructuring under the IMF deal. That would indicate it considers its bonds as subject to discussion by the Paris Club of creditors, rather the London Club, which encompasses debt owed to the private sector.
Asked her opinion, Yaresko told Reuters:
“To me it is clear (that they are London club). They are a Eurobond, but they are saying they are not London club. I am not going to do the work for them.”
She said that once the Russian bondholders decided how to proceed, Ukraine would “adjust and adapt and take it into account”.
Reporting by Karin Strohecker; Editing by Susan Fenton